Towards a New Understanding of Sraffa examines the legacy of Piero Sraffa by approaching his ideas in a new light, thanks to the insights gained from the opening of the archive collection of his papers at the Wren Library (Trinity College, Cambridge, UK). It provides a refreshing perspective into Sraffa's approach to money, the role of equilibrium and of the surplus in economic theory. The study is backed by previously unpublished, original, archival material. It provides an appraisal of the discontinuities in the path leading to the publication in 1960 of Production of Commodities by Means of Commodities since its conception in the late 1920s. It unlocks significant new perspectives about the connection of Sraffa to Marx regarding Standard commodity, the macro-social and monetary theory of exploitation, the tendency of the rate of profit to fall, and the transformation of values into prices of production. It also offers insights on how Sraffa dealt with money in the various pha…

The title comes from Joan Robinson's famous essay. However, the motivation is to clarify some comments on a previous post on what Keynes meant by unemployment equilibrium (sent to me, but not published). There is a relatively widespread notion among some post-Keynesians that neoclassical economics assumes always a single unique equilibrium, and that Keynes, or at least his closer followers like Robinson, believed in multiple equilibria. The idea is that post-Keynesians believe in an unstable, uncertain capitalist system in which full employment is only one possibility.
Beyond what one may think about equilibrium, there is no basis in the history of economic ideas for that view. Keynes was a Marshallian, and as such did believe in the notion of a single stable long run equilibrium of the system. The radical element in Keynes analysis is that such equilibrium might be suboptimal, that is, one in which resources are not fully utilized. He is very clear when he says in the General Th…

Throughout her career as an author, analyst, congressional staff economist and teacher, Ms. D’Arista has brought together several strands of heterodox economics. While she may be characterized accurately as one of the last great institutionalists, her work also defies easy classification. Perhaps the clearest way to view Jane is as a tough-minded empiricist who has produced critical, original insights into the functioning of the financial system and economy – and done so with the uncompromising goal of improving human welfare.

By Mark Blyth and Eric Lonergan
In theory, governments can boost spending in two ways: through fiscal policies (such as lowering taxes or increasing government spending) or through monetary policies (such as reducing interest rates or increasing the money supply). But over the past few decades, policymakers in many countries have come to rely almost exclusively on the latter. The shift has occurred for a number of reasons. Particularly in the United States, partisan divides over fiscal policy have grown too wide to bridge, as the left and the right have waged bitter fights over whether to increase government spending or cut tax rates. More generally, tax rebates and stimulus packages tend to face greater political hurdles than monetary policy shifts. Presidents and prime ministers need approval from their legislatures to pass a budget; that takes time, and the resulting tax breaks and government investments often benefit powerful constituencies rather than the economy as a whole. Man…

Recently, Lars P. Syll posted a critique of the loanable funds theory (see here), and Matias Vernengo provides his take here. Below is a paper by Giancarlo Bertocco, in which he provides an analysis of Keynes' criticism of LFT.

From the abstract:
Contemporary monetary theory, by accepting the theses of the Loanable funds theory, distances itself from Keynes, who considered the rate of interest as an exclusively monetary phenomenon, and overlooks the arguments Keynes used, following publication of the General Theory, to respond to the criticism of supporters of the Loanable funds theory such as Ohlin and Robertson. This paper aims to assert that the explicit consideration of the role of banks in financing firms‘ investments connected with the specification of the finance motive does not imply acceptance of the LFT, which holds that the interest rate is a real phenomenon determined by saving decisions, but makes it possible to elaborate a theory of credit alternative to the LFT an…

"Economics is a science or a series of beliefs? The
current crisis foretells the end of a system or its umpteenth transformation? Is
the economy at man’s service or is it his master? What is the relationship between
capitalism and democracy?
Through the reflections of many international experts
(Robert Boyer, Ha-Joon Chang, James Galbraith, David Graeber, David Harvey,
Kari Polanyi Levitt, Eric Mielants, Thomas Piketty, Robert Skidelsky, Yanis Varoufakis and
Matías Vernengo) and thanks to a great wealth of archives we analyze the backstage
and the contradictions of a system that underpins our everyday lives."
See more here and here.

Recent paper reviewing the role of the IMF after the Global Crisis and the supposed changes in its theoretical views and policy stances, co-authored with the late Kirsten Ford. We concluded that: "The IMF remains fundamentally an instrument of advanced and creditor countries, to force contractionary adjustments on poor, indebted countries."

On the theoretical front, it is worth remembering what Blanchard, the current IMF economic counsellor, said back in 2010:
"It is important to start by stating the obvious, namely, that the baby should not be thrown out with the bathwater. Most of the elements of the pre-crisis consensus, including the major conclusions from macroeconomic theory, still hold. Among them, the ultimate targets remain output and inflation stability. The natural rate hypothesis still holds, at least to a good enough approximation... Stable inflation must remain one of the major goals of monetary policy. Fiscal sustainability is of the essence." [Emph…

Jamie Galbraith on why the distinction between Saltwater and Freshwater (at minute 26 or so of the video) is not a good one, and why we need Backwater economics. Backwater is actually a good name, since it may be caused by an opposing current, and that's what heterodox economics should be, a counter current to the main stream. The other parts of the panel with Krugman and Buiter here and here. This was during the INET Rethinking Economics conference, by the way.

So, as the map above shows, independence from the UK is nothing new. And I personally have no particular opinion on whether independence is good or bad for Scots, although many on the left seem to think it's a good idea. However, it is undeniable that independence and maintenance of the pound is a terrible idea. Here is Wynne Godley, who I should add was in favor of the European Union, but not of the currency union as it was organized, in 1992 (from a previous post available here).
"the power to issue its own money, to make drafts on its own central bank, is the main thing which defines national independence. If a country gives up or loses this power, it acquires the status of a local authority or colony. Local authorities and regions obviously cannot devalue. But they also lose the power to finance deficits through money creation while other methods of raising finance are subject to central regulation. Nor can they change interest rates. As local authorities possess none of…

By Lars P. Syll
Earlier this autumn yours truly was invited to participate in the New York Rethinking Economics conference. A busy schedule didn’t allow me to “go over there.” Fortunately some of the debates and presentations have been made available on the web, as for example here. Listening a couple of minutes into that video one can hear Paul Krugman strongly defending the loanable funds theory. Unfortunately this is not an exception among “New Keynesian” economists. Neglecting anything resembling a real-world finance system, Greg Mankiw — in the 8th edition of his intermediate textbook Macroeconomics — has appended a new chapter to the other nineteen chapters where finance more or less is equated to the neoclassical thought-construction of a “market for loanable funds."
Read rest here.

For an explication and presentation of the extent to which LFT is derivative of modern neo-Wicksellian macroeconomics, see here.

From the abstract:
The purpose of this paper is threefold. First is to comment upon the nature of financialisation. Second is to frame how this leads financialisation to be understood whether consciously or otherwise. And, third, is to draw out implications for surveying households as their experiences and understandings of, and reactions to, financialisation without specifically designing a questionnaire itself for this purpose. As should already be apparent, underpinning this contribution is the presumption that financialisation is a characteristic of contemporary capitalism (and that the term is also an appropriate category for representing this characteristic). The material culture of financialisation is addressed by drawing upon the 10 Cs approach that was developed for the study of consumption, highlighting how it is Constructed, Construed, Commodified, Conforming, Contextual, Contradictory, Closed, Contested, Collective, and Chaotic.
Read re…

From the introduction
Building on a description and assessment of the contributions of different economic traditions (neoclassical, structural, institutional and evolutionary) to the analysis of policies in support of structural transformation and the generation of productive jobs, this book argues that industrial policy goes beyond targeting preferred economic activities, sectors and technologies. It also includes the challenge of accelerating learning and the creation of productive capabilities. This perspective encourages a broad and integrated approach to industrial policy. Only a coherent set of investment, trade, technology, education and training policies supported by macroeconomic, financial and labour market policies can adequately respond to the myriad challenges of learning and structural transformation faced by countries aiming at achieving development objectives. The book contains analyses of national and sectoral experiences in Costa Rica, the Republic of Korea, India, …

Noah Smith, now writing regularly for Bloomberg, had a piece on this subject. There are a few good points on how New Keynesians are really followers of Friedman, something Mankiw admitted long ago, and how everybody including conservative economists (meaning GOP economists like John Taylor and Ben Bernanke) are New Keynesians (these would be the potty trained GOP economists, not your supply-side fringe economists like Arthur Laffer). Note that this is essentially correct as pointed out here before, since New Keynesians accept fully Friedman's notion of a natural rate of unemployment, while Keynes explicitly said he wanted to reject the twin concept of a natural rate of interest.

Noah also suggests that Keynes only wanted stabilization policies, and no redistributive policies, which is more open to debate. Keynes was certainly a moderate reformer trying to save capitalism from itself, and was no fan of the Soviet experiment. On the other hand, he was an Asquith liberal, meaning co…

I tend to disagree a lot with Krugman, at least on theoretical issues. His brand of Keynesianism supposes that the system doesn't work because of imperfections. For him, the current slow recovery is due to the fact that the natural rate of interest is basically negative and you cannot use monetary policy to stimulate the economy (see critique of this here). However, on his recent debate with Lars Syll (and here; Brad De Long also posted here), a post-Keynesian, with whom I probably share a more radical interpretation of Keynes and its relevance for economic theory, Krugman seems to get things right.

The main points in Lars initial post, based on Minsky's book John Maynard Keynes is that traditional representations of Keynes do not emphasize the cyclical component of Keynes' theory and that true or fundamental (non-probabilistic) uncertainty is often ignored. Lars adds a little bit more on his response to Krugman and De Long, but essentially is the same argument. Keynes di…

A series of papers that provide more than a review a collective response to Piketty's book can be found here. It was part of a mini-symposium organized by Lance Taylor, co-sponsored by the New School and INET.

Editorial Reviews:
Many scholars have contributed to ongoing debates about the competition between the dollar and the euro for global monetary dominance. Few have added as much value as Miguel Otero-Iglesias with his systematic and original survey of the views of financial elites in major emerging market economies. Where conventional interpretations emphasize material "reality," Otero-Iglesias's ideational analysis clearly demonstrates how important it is to consider as well how "reality" is perceived and framed by key actors. The euro may be structurally weak, limiting its "hard" power. But at the cognitive level of "soft" power, Otero-Iglesias suggests, Europe's money poses a significant challenge to America's greenback. This is an argument to be taken seriously.
Benjamin J. Cohen, Louis G. Lancaster Professor of International Political Economy University of California, Santa Barbara, USA.
This is a book I’ve been waiting for: a de…

Below is an excerpt from Keynes' "Essays In Persuasion" (1930), in which he provides his invaluable insights on human potentialities concerning human freedom during the Great Depression. Notice that the overall message is quite relevant to the turbulence of today. (h/t to Nate Cline for noticing that in the first part of the essay Keynes, in fact, is very un-Keynesian in the sense that he accepts the 'natural rate' theory of capital & unemployment).
We are suffering just now from a bad attack of economic pessimism. It is common to hear people say that the epoch of enormous economic progress which characterised the nineteenth century is over; that the rapid improvement in the standard of life is now going to slow down – at any rate in Great Britain; that a decline in prosperity is more likely than an improvement in the decade which lies ahead of us. I believe that this is a wildly mistaken interpretation of what is happening to us. We are suffering, not from…

By Bill Black
I do not know whether the Scots should vote for independence. I assume that the odds are they will vote against it. I do know that the reasons advanced for voting against independence by business interest are false. Indeed, the opposite of what they claim is far more likely to be true. What I find a joy to behold, however, is the suggestion by the banksters that the Scots should get their economic advice about independence from a group of failed and often fraudulent parasites and that they should avoid any action that creates “uncertainty” or would cause them to act as a Nation rather than a U.K. province. There is a serious effort to make independence from the Brits sound like the path of economic madness. Each of these asserted business bases for cowering from independence is an insult to the people of Scotland. In an irony that, if the polls are accurate, is increasingly sensed by Scots, the business arguments against independence, unintentionally, have made a …

The International Labor Organization (ILO) argues that beyond the Millennium Development Goals (MDGs), the international community should also address the structural underpinnings behind poverty, inequality and sustainability, the lack of decent jobs.

By William K. Tabb
The current stage of capitalism is characterized by the increased power of finance capital. How to understand the economics of this shift and its political implications is now central for both the left and the larger society. There can be little doubt that a signature development of our time is the growth of finance and monopoly power. In 1980 the nominal value of global financial assets almost equaled global GDP. In 2005 they were more than three times global GDP. The nominal value of foreign exchange trading increased from eleven times the value of global trade in 1980 to seventy-three times in 2009. Of course it is not certain what this increase means, since such nominal values can fluctuate widely, as we saw in the Great Financial Crisis. They cannot be compared directly and without all sorts of qualifications to the value added in the real economy. But they do give an impressionistic sense of the enormous magnitude by which finance grew and came to dominate th…